10 Best Small-Cap Value Stocks to Invest In Now

Page 1 of 3

The slide in AI stocks is prompting investors to explore beyond the market’s leading companies. According to Reuters on November 2, more than 70% of S&P 500 constituents increased in October, despite steep drops in AI-related companies, while small- and mid-cap indexes also advanced. “Investors want to maintain equity exposure. But now they want to reduce AI concentration risk and are adding to areas that offer differentiated sources of return,” said Angelo Kourkafas, senior global investment strategist at Edward Jones. This broadening opens up opportunities for smaller companies whose attractiveness is based on earnings and cash generation rather than enthusiasm for AI spending, a theme Insider Monkey explored in its coverage of Howard Marks’ warnings on AI stocks.

On October 20, the Russell 2000 gained 1.7% and the S&P 500 Value Index jumped 0.9%, while the growth counterpart declined 0.2%. Speaking to Reuters, Jim Baird, chief investment officer at Plante Moran Financial Advisors, said the following:

“Equity investors are still a little skeptical around the AI trade and the ability for some of these companies to monetize their investments, so you’re seeing a bit of a rotation into other areas of the market.”

The shift strengthens the case for looking beyond crowded technology markets to other areas, such the smaller companies profiled in Insider Monkey’s 10 Cheap Small Cap Stocks to Buy Now.

Small-cap value has also provided some safety during the recent slump. In his third-quarter review, Royce Investment Partners Co-Chief Investment Officer Francis Gannon noted that the Russell 2000 Value Index fell 4.9%, compared to the Russell 2000 Growth Index’s 9.4% drop. That doesn’t make value stocks immune to losses, but it shows why starting valuation is important when investors are less willing to pay for future growth.

Gannon claims that the opportunity hasn’t disappeared following the rebound. “Today, we see a potentially powerful combination for small-cap investors: accelerating earnings, attractive relative valuations, and low expectations,” he wrote in a commentary published on October 30. He emphasized higher-quality companies with robust balance sheets, sustained profitability, and disciplined capital allocation, a significant distinction between buying cheap businesses and simply buying declining share prices. That distinction also influences stock selection. In this regard, Insider Monkey’s recent 10 Strong Buy Small Cap Stocks to Invest In provides a similar view on smaller companies receiving analyst support.

That said, the rotation still has limitations. Reuters warned that broader market weakness might transform diversification into outright risk reduction. “If the major averages begin to drop in a more compelling manner, it is very likely that investors will stop rotating into other sectors … and start rotating into cash,” Miller Tabak’s Matt Maley wrote in a note. The best small-cap value candidates need more than just a positive market trend: earnings, liquidity, and balance-sheet strength that can endure a less supportive environment.

10 Best Small-Cap Value Stocks to Invest In Now

Our Methodology

For this list, we screened for small-cap stocks that have a forward price-to-earnings ratio of less than 15. Moreover, these stocks boast a revenue growth rate of over 20% over the previous twelve months. We then ranked the shortlisted stocks in ascending order based on the number of hedge funds holding their shares, using Insider Monkey’s database of hedge fund ownership for Q2 2026.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Insider Monkey’s quarterly newsletter strategy selects 14 small-cap and large-cap stocks every quarter and has returned 612% since May 2014, beating its benchmark by 375 percentage points (see more details here).

10. RLX Technology Inc. (NYSE:RLX)

Forward P/E: 10.59

TTM Revenue Growth Rate: 39.66%

Number of Hedge Fund Holders: 15

RLX Technology Inc. is a global branded e-vapor company that currently generates over 70% of its revenue outside China. The company’s second-quarter net revenues increased 14.8% to RMB1.01 billion (about $149 million), with international sales accounting for 68.5% of the total. Gross margin rose to 35.4% from 27.5%, boosting gross profit by 47.8% to RMB357.8 million. Non-GAAP operating income also climbed 28.8% to RMB149.6 million, marking 11th consecutive quarter of positive non-GAAP operating profit. Back in July, RLX bought a 51% share in a Western European distributor of smoke-free and consumer products, which management expects to significantly boost reported revenue beginning in the third quarter. It has also introduced oral nicotine pouches and is establishing a manufacturing facility in Southeast Asia.

Growth is lumpier than the headline implies. The first quarter revenue rose 96.2% to RMB1.59 billion due to a one-time pull-forward related to regulatory export adjustments, thus the second quarter revenue declined sequentially. At the same time, non-GAAP net income fell to RMB238.8 million from RMB291.2 million a year ago, while operating cash flow was negative RMB63.2 million. The stock is now dependent on whether Europe and the new pouch category can replace the pull-forward. Read how RLX is betting big on both here.

9. Jefferson Capital, Inc. Common Stock (NASDAQ:JCAP)

Forward P/E: 6.56

TTM Revenue Growth Rate: 72.54%

Number of Hedge Fund Holders: 16

Jefferson Capital, Inc. buys and collects on charged-off, insolvency, and active consumer accounts, and it has lately entered the Mexican market. The company’s second-quarter collections rose by 18% to $300.9 million, deployments increased by 21% to $152.2 million, and remaining collections are expected to climb by 18% to $3.4 billion. Meanwhile, adjusted earnings per share of $0.77 surpassed analyst expectations of $0.62, while adjusted pre-tax return on equity came in at 51.6%. The bull case revolves heavily around valuation. Jefferson Capital trades at 6.56x forward earnings and 7.77x trailing earnings, a low multiple for a company that is increasing collections and revenue at a double-digit rate. The average analyst target of $30.00 represents a 49.4% upside, while Raymond James boosted its target to $24 from $21 and maintained an Outperform rating.

Investors will get the next update on November 12, when Jefferson Capital announces its third-quarter earnings. Analysts expect revenue of approximately $181.9 million and EPS of $0.68 to $0.72, with a broader range of $0.65 to $0.76. The report will reveal whether record deployments and forward-flow agreements are leading to ongoing collection growth.

For now, costs are the concern. Operating expenses increased by 46% to $95.4 million, or 35% after adjusting for IPO-related items and stock compensation, owing in part to higher court costs as more collections are made through the legal channel. Adjusted EPS remained unchanged at $0.77 year-over-year, but net operating income dropped to $41.3 million, down from $47.7 million from Q2 2025. If legal expenditures continue to outpace collections, margins will narrow. See why costs are rising faster than growth here.

Page 1 of 3